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"Unfortunately, the supply/demand imbalance that exists with lumber doesn't exist for the raw material: trees," Thomas said.
ALBANY, GA, October 16, 2020 /24-7PressRelease/ -- It seems the spike in lumber prices over the summer and into early fall would have had a positive impact on prices paid to forest landowners for their large pine sawtimber trees used to make lumber and other home construction materials, but the correlation is not there.
Marshall Thomas, president of F&W Forestry Services, Inc., one of the nation's largest forest management firms, said an oversupply of trees in the Southern U.S. has resulted in an unlimited supply of wood for mills, holding the prices paid to landowners for their large pine sawtimber trees flat.
"When the virus first hit, there was a general belief among sawmills that there would be a great reduction in demand for lumber, so many of them significantly cut back production," Thomas writes in his company's quarterly newsletter, The F&W Forestry Report.
What mills did not anticipate was demand for lumber from people sheltering at home with nothing to do but embark on home improvement projects. Furthermore, after an initial drop in housing starts in April, the home construction sector rebounded strongly, adding to the demand for lumber. These two factors, when combined with mill production curtailments and shutdowns due to the virus, created a short-term supply/demand imbalance, Thomas said.
"Unfortunately, the supply/demand imbalance that exists with lumber doesn't exist for the raw material: trees. In the South, we are still suffering a supply hangover from the Conservation Reserve Program (CRP) trees planted in the late 1980s and early 1990s, exacerbated by the 10-year reduction in harvests following the 2008 economic crisis and recession. So, although we have a short-term supply imbalance with lumber, that hasn't translated into higher prices for trees because we still have too many," Thomas said.
"Supply in the lumber market can change rapidly, depending on lumber production and consumption. In the raw material market, it takes landowners 20 to 30 years to grow trees suitable for lumber," Thomas wrote. "Unfortunately, we planted too many fast-growing trees 20 to 30 years ago, and it will take us a while to work our way out of that inventory."
More precise forest inventory data, better forecasting of domestic demand, and strong export markets are factors that Thomas said could help get sawtimber supply and demand back in balance.
"If we get the COVID-19 problems straightened out, and exports to China take off, that could quickly eat up our oversupply," Thomas said.
Thomas is also concerned about new government-sponsored programs that pay people to plant trees, such as the Trillion Trees Act. Without qualifications and limitations, such programs could result in another oversupply of trees and harm private forest landowners already doing what the programs encourage them to do.
Thomas said if legislators put the equivalent of another CRP in place—paying people to plant trees—and those trees get to market, we can all just give up on timber markets.
Established in 1962, F&W Forestry Services, Inc., of Albany, Ga., is one of the nation's oldest and largest forest consulting and management firms. The company handles timber sales and provides comprehensive forest management and consulting services. It also offers the full array of real estate services through its subsidiary, Fountains Land. The company maintains a network of 20 offices in 12 U.S. states comprising the Southern Pine Belt, the Central and Appalachian regions, and the Northeast. F&W also manages private forestland internationally through 13 offices located in Uruguay, Brazil, France, and the United Kingdom.
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